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To see the examples in the episode checkout the free corresponding course https://moneyforaveragejoes.com/course/debt/

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Welcome to money forevers Joe’s a 12 part series on personal finance. I’m your host, Jason Weaver, an average Joe. And today episode six is all about learning how to crush your crushing debt. And I just want to take a second to say, average Joes is all about pulling from the best podcasts, online resources gurus and giants in the industry. Because there’s really no one size fits all for every family, but also so that you can have kind of a centralized experience to help you understand here’s where I am on the roadmap like in episode one.

And guide you along that journey using those best resources. And as a quick refresher, Episode Five was all about learning how to make more money and do this outside of a career move or going back to school. We’ll cover that in a future episode. Of course, all this is so you can live better and have more money for when it matters most.

1:04

I’ll talk about investing in future episodes, but essentially the percentage of how much you save, versus how much you spend, or basically the idea of how much are you actually keeping per month so you can invest or save as a percentage is, is really useful. So most wealthy people, for instance, are saving 15% or more of their income, and then investing that or putting that towards their emergency fund or whatever, but not spending it, right.

1:35

So, let’s talk about paying off our debt because, you know, for good or bad reasons, you’ve probably gotten into debt at some point, I’ve gotten in and out of debt with my spouse several times in my life, you know, and we’re definitely moving towards the getting out of debt stage right now. And we’re pretty far along on that. So we’re pretty happy with where we’ve come. So depending on your circumstances, is there’s really only three places that the free course of the Church of Jesus Christ of Latter Day Saints puts on. And also, I agree with that you should use debt, a modest home, reasonable education expenses that will lead to better work, and is very likely to lead to that, which we’ll talk about later in future episodes as well. And then modest, basic transportation. And think about that if you can just move across town in the cheaper place close to where you work, you might not need a car especially for a couple years in your life. So you can get to that saving higher percentage or saving towards a goal like being able to buy a house right.

2:41

So I love this quote from the church’s resources, you should likely avoid going into debt for items other other than these three, basically, they say, instead save up for these expenses. And recently I was doing some coaching and it was kind of fun to work with this couple and they said, Oh, so I become my own bank. When I introduced the idea of a emergency fund or a budget, they called it their bank, I’m going to go to my bank, I’m going to take from myself to pay off this emergency or this need. And I’m not going to go to somebody else’s bank and make them money. So I love that idea. I also wanted to mention back in Episode Two tracking your budget, we we could see a chart that was put on about how most people are in debt and where that breaks down.

3:36

So credit cards was the smallest auto loans the next student loans the next and then mortgage the next and credit cards in this study. There’s tons of different studies, this one’s by nerdwallet 16,000, almost 17,000 in credit card, and so on. You can see the whole chart in the resources and show notes I like this idea of an 8020 rule, right and a lot of people have talked about this might be a concept you’re familiar with, but you know, 20% of your efforts or things that need to be done, are going to make 80% of the results. There’s a lot of different ways to phrase that. But in most cases in these, you know, three categories, this is where I think you are going to get the most impact. So if you were to really scrutinize and manage hard on the places that you overspend, you know, like, back when I was looking at, you know, tracking my budget, I showed that I overspent on these things, and I’m sure you do to your home slash rent your car, travel, car, your food, and then on to maybe your next biggest, you know, expense. Maybe for you it’s entertainment, or, you know, maybe it’s something else vacations, I guess that could fall under travel as well, but you could split it out depends. How much you

5:01

spend and what type of vacations you like to take you like to take a big vacation once a year, then you’re going to need to be saving for that instead and go to your own bank to pay for that. And rather than go to somebody else’s, so let’s dive into each one of those. Of course, you should have reviewed your own and you can make your your own list and then start diving in on the top 20% of where you’re going to get the most impact. Of course, you can try to manage everything and that’s fine. There’s some great budgeting tools that can help you with that shift money from one fund to another during the month as you’re looking I personally use mint because it is the easiest, but still can show me a snapshot at any point in the the day and it’s free. And any day of the month. You can see where you’re at but I would say most people that actually take the time to put in every expense that they charge on their credit card or debit card will feel the pain a little bit more and we’ll be able to see that as they go and maybe do that once a week. Then they can adjust and only have to do it, you know, four times a month. And and they’ll get better results by doing it that way. So you got to find your path right so let’s dive into homes, rent, maybe you can think radically. You can get roommates move back into your parents home for six months, you can downsize. There’s there’s an app for turning like where I live, we have basements you can turn your basement into storage for college students. You know, there’s tons of different things you can do to lower your cost per month. Just something you can think about your travels, car, I really love this study that I found. It’s a triple A does a study. And it’s the true cost of your your vehicle or your car. Right. And it’s kind of averaged out. Of course, if you’re really smart, you can go figure it out for yourself. Right? But most likely, like when I tried to figure it out, I was way way too optimistic way too. Much under. So just having this general study I think is way more impactful to take a look at so let’s just dive into the small sedan, the average yearly cost. And we’re not talking about you though, what you’re paying to have that car if you are paying off a car, or you know anything like that we’re talking about just pure maintenance, that’s going to cost you to upkeep that car, keep it in good condition, and it may not all hit on one year may head on two years or whatever, what’s, what’s the true cost, you know, based on 15,000 miles driven annually, okay. So sedan $6,354. And so that’s pretty small a minivan like I own I own a minivan as well. We have two cars at this point. We could probably go down to one but that’s something that we’ve chosen not to completely skimp on. So minivan nine Thousand $146 you can see like a hybrid, in some cases is more expensive $7,687. So you can look at this study, take it with a grain of salt, but just know the type of car you drive and how much that actually costs annually and perhaps think of doing something different. Like taking public transportation if it’s close to where you’re at or walking more, or going shopping once every other week, and having your roommates drive and shipping $1 to source gas for them, right. So now on the food, essentially, that’s one of those places my wife and I spend out way too much on that’s one of our top 20% we have to we have to manage or else it just blows out of proportion. And, you know, like I’ve heard on other shows and other people talk about especially Dave Ramsey. You’re eating your retirement Right, like you’re literally eating it when you go out to eat too much. So depending on how much you make and what you put in your spending plan slash budget, that determines how much you can spend towards food, right, and of course, eating at home, for the most part, when you mostly make the ingredients come together yourself, you’re not buying pre package kits or things like that or not. I mean, yeah, you can say by eating ramen or other stuff that’s not very nutritious, right? So doing a meal plan, so planning, and if you can do that, like, based on what the cells are, or pre buy your meat when it’s half price and freeze it real good. You know, there’s different things you can do. And so in a future episode, episode nine, we’re going to talk about spending less. A lot of other people talk about that sooner, but I’m more of the abundance mentality. So we talked about earning more sooner, right. But we’ll try to cover a little bit more on food plans. There.

10:01

And, and whatnot. So then it’s on to whatever the next most important thing is for you, wherever you spend the most. But you know, you managed four to six things, and you manage them. Well, after you’ve already downsized where you live or do a couple other things that are a bit smarter, you now have freed up, hopefully more of that 15% in the in this case, instead of it going towards savings, it’s going towards your debt. So let’s talk about the dreaded credit card, right?

10:32

It turns out that 50% or more of people, and depending on which study you’re looking at, this is a credit card com study are spending money poorly or using a credit card incorrectly, right? purchasing things I need. That’s okay. Right? earning rewards. Who doesn’t want to earn rewards that’s, that’s let’s put it in the middle. provide emergency cushion. Okay. That’s the worst time to get into debt. improve my credit rating. You know, there’s not a lot of things that really, that I think you need that require an amazing credit rating. So why do you have to have a credit card for that? You know, they’re, they’re first time homebuyers for instance, there’s different specials are not specials, but there’s different programs to help you you and if you don’t have any credit right and so I’m not sure that that that qualifies as a good reason. provide extra money for things I want. Okay, that has a terrible terrible reason. paying off debt. Okay, worst reason ever, right? You know, trying to shuffle from one credit card to another not awesome. So let me tell you how to make an average of $1,292 more a year, don’t have a credit card. So that’s what nerdwallet found. One study basically is just that’s how much you pay on average.

11:58

For fees whatnot, right? So you can, I’m sure there’s a ton more things you could do with that thousand dollars that you can, you know, go on a vacation once a year or you could actually put it towards your Roth IRA. Right so that you have a future retirement. So I just want to mention, in general don’t use a credit card. It’s not ideal. It’s not. It’s not a tool. What it is, is it is a method to stay in debt and be in debt forever. Before I dive deeper, I just want to mention that I created this show as a supplemental guide is you attend with your spouse, it local Personal Financial Group, the church she described the latter day saints or Dave Ramsey puts on great groups, the churches once free, ramseys nearly free and fairly cheap. And my wife and I would say these are basically lifesavers, you got to do it. It’s so critical. You got to have that support. You can’t just listen to the show. You gotta go take action and apply it So I just want you to know, I’m not officially authorized or affiliated by the Church of Jesus Christ, Latter Day Saints or Dave Ramsey, I just want to share the best resources out there that I can find and help motivate you to stay on the path to find financial freedom and success. So let’s now shift gears to Let’s pay off this debt, let’s get that burden off our back. That’s crushing us. And let’s essentially crush it. So just you know, in general, a lot of studies have shown if you can visualize your debt, and you know, whether that’s a chain that you make and every thousand dollars of debt paid off, you rip off or whether you can pay off the smallest at soonest and then move on to the next those are things that help your brain essentially, get a get a happy charge for doing that help keep you motivated and whatnot. But we’ll talk about the most financially fast way to pay off your debt as well just in case you really are One of those high factfinder type people that really cares about those details. So I love this quote if you have debt to make only the minimum required debt payment until you have built it one month emergency fund, okay, so don’t forget about that we talked about emergency funds before. Don’t forget about how important it is to basically have your own bank that you can take money from and pay. You know, some others believe $1,000 buffer right? I think it’s a better idea to get that one month emergency fund. Just think about if you need to move, if you for a job opportunity or some sort of crazy thing happens. You know, a one month buffer i think is a bare minimum for you to feel like your soul and life is not crushed. Okay. So let’s talk about the avalanche method. This one is the only one that matters for if you really care about your paying off your Debt the fastest best way and also paying the least amount of interest, right? So you basically put your highest amount owed to lowest. Well, it’s more like highest interest rate to lowest sorry. And then the snowball methods more that brain method I mentioned before, where it’s your lowest amount of to highest amount, so that you can tick them off as you go a little bit better. So there is a really cool calculator that nerdwallet created. There’s others out there, you can just put, you know, Debt Snowball calculator into Google, I’m sure and find the good one. in the show notes, I have a really great snapshot of an example here. And it can just help you see kind of how long will it take to pay off that debt. When how soon Could you be debt free, you know, you could also see if you’re only making minimum payments, or if you can only put $200 towards $1,000 debt or whatever it is you can plug in all your debts and see, just kind of nice.

16:10

So until your consumer debt like credit card is paid off, you got to focus there and I don’t lump home loans or student loans into your in major debt. Okay? Because usually a home is can be more of a mess. But if you’re going to be there over five years and you have a good emergency fund or buffer, right, so we’re not talking about student loan debt here. We’re not talking about mortgages, you know, paying off your mortgage faster, great idea, something we talked about in a future episode for sure. But you’re going to want to pay off all your debt, then build up your three to six month emergency fund before hitting your student loan or home debt while planning for retirement. right because you got to put money in now for it to build up over time so that when retiring comes you don’t have to retire in squalor or, you know, put all your hopes and dreams on basically the government’s back.

17:06

You want to be self reliant. So also, it’s important to understand lot while you’re paying off even this initial consumer credit card debt, it’s okay to do the match at your company retirement plan, okay, there is a match that they’re willing to give you. And there’s not this crazy long vesting period where it’s, you know, five years before you can actually get that match, then, you know, it makes sense. Well, there’s 3%, or whatever of your income, just do the match. Trust me, it’s good. Obviously, when you when you get past that stage where you maybe have got your student loans done, or it’s going to take 20 years or 10 years for your student loans to get done. Right. Then you can still bump it up, maybe it’s 10 15% or something a little bit higher. Just depends on your situation. So let’s talk about if you’re in crushing, crushing, crushing financial debt or you have a huge financial crisis or problem that happens to you, okay? You got to think of this as essentially you’re playing football, and you’re going for a touchdown. And you get so many downs and sometimes you you basically get pushed back or or you can’t make any progress or you go back on the field. Sometimes you have to do something completely drastic to distract all the people that are trying to pull you down and throw a hail mary to get a touchdown and get out of this debt. You know, that’s changed your career, that cell you know, move out of your house for six months that’s sell all the non essentials. You know, sometimes there’s crazy things you gotta do. I had a mentor in my life young. He lost his job for a year. He sold one This cars lived off his food storage for a year okay. But no, he did not go into debt. His life was not crushed. And he had a future and and hope of the future because he was very financially savvy and had taken the advice of so many smart people before him.

19:19

So you may need to cut unnecessary expenses for a time if possible, focus on food, shelter, utilities, unnecessary transportation, before paying other expenses, to quote from the churches resources. So you may also need to temporarily delay or reduce payments, extend or permanently modify the terms of alone. I don’t have any advice for doing that because that’s that can be really hard, but there are professionals that can help you with that. I do want to warn you though, debt consolidation basically is a trick in most cases. It’s just going to lower your monthly payment by extending how long you owe the debt for it’s going to be All of those debts into one basket and it’s going to take even the low debts, the ones that are very small low interest rate and it’s going to throw them in with all the ones that are high interest rate like your credit card that might be 17 or 20 something percent interest rate, and then it’s going to even an out to who knows 10% or whatever it’s going to do. So obviously, debt consolidation in most cases is also another point for them to sell you other stuff and, you know, make that debt crushing for a long time. But, you know, if you ended up doing it, definitely don’t lump in all your low, low interest debts, okay? Like student loans, you don’t need to hopefully you don’t need to do that. But don’t do it. I instead use the method because I had a low amount of debt, I was able to Google and find a zero interest for 12 months credit card and throw on there just I think, over just slightly over $2,000 of debt when we were paying that off, you know, kind of that chain approach of you know, Every instead of every thousand it was every, you know, month it was $200, right until it was paid off. And that, you know, or whatever it was something like three or $400 use the calculator. And, you know, we were able to break the chain of debt, essentially and free ourselves. So we use magnify money to find that credit card. And of course, there’s often fees when you transfer from one account to another. So I got a notification shortly after having transferred my money to this credit card that has zero interest for 12 months, which was really great that my old bank had just made it so that you’re going to get a huge fee. If you do that. So I had transferred just before that that happened. So I was very grateful. You know, I was, you know, inspired at that moment to make this happen. So that was good for us. Alright, so debit cards, and savings accounts with benefits. Alright, so You know, using magnify money or Google or some other tool out there, which I’m not affiliated with either, but you can find high APR, AP why interest rate? You know, savings account high yield savings account. That’s something you could search. I found one that was pretty good. I also happen to have a credit card where you are a debit card. I’ve sworn off credit cards, not going to use them anymore. Except maybe in my business for everyday expenses for the business is I actually have found that I don’t overspend in my business ever. So I’ve been okay with that. But for the most part, you can’t go into debt if you don’t have that option. So it’s better just not to have it but you can find debit cards that will give you 1% cash back so you can you know, kind of, there’s some cards that claim to give you 5% or whatever, there’s the apple card now that they have instant savings that’s a very or cashback. It’s very addicting, but you know what? Why don’t you meet in the middle with me and just get a debit card that has a 1% cash pack, okay, you by always need to have a couple hundred dollars buffer in there on top of your emergency fund which is in some other account. So it’s not so easy to get to you have to make a conscious choice to transfer it out, right. But you might have 100 or $200 buffer in there because you do not want to have to pay an overdraft fee. Those are the worst they hit every single time you overdraft. And you should just check your money regularly. Right so you don’t have that problem. But Meet me in the middle get a debit card, then you can still get some cash back. Most credit cards honestly, when you do all the math or whatever, you’re making 2% cashback tops, all right. I don’t care what anybody says. I don’t care about miles or anything. Whatever, split the difference with me don’t go into debt and at least get your you know, who knows 100 $200 a year to go towards your vacation for free and you didn’t have the option to go into debt.

23:57

Okay, so there are some really great tools, if you have crushing student loan debt, I’m sure in some scenarios, it can make sense to refinance your home. There are, you know, obviously professionals out there that can help you with weird situations whether you get a huge windfall of money from somebody that passed away or, you know, you’re in a unique situation, you might find the financial advisor for that, or, you know, whatnot. But there are some great great tools online to right so magnify money is one of them for find those savings accounts. I recently found out about for student loans, there’s a app called chipper and I’m sure if you just you know, Google how to pay off your student loans or, you know, how to, you know how to get a lower interest rate on your student loans, things like that. You might find tools like chipper and others out there that can help you move on to that next. So with chipper, it says that it compares it saves you know, switching your student loans potentially So it’s not necessarily the same concept as debt consolidation, because it’s only talking about just taking care of that. It’s kind of that concept almost of, you know, loan balance transfer on the credit card, right? pay down your debt faster with rounding up average. So there’s some different apps out there that have done that where like you, you add, add your bank account, and then, you know, every time you spend under $1, on something, it will round up. And you know, who knows, at the end of the month, you might have paid $50 or $54, on average is what they see towards your student loans. So you can pay it off faster, but it doesn’t feel like it hurts as much with that. I kind of feel like okay, if you could try to trick your brain like that, but at the end of the day, you got to figure out what that total dollar amount needs to be, whether it’s $54 or hundred dollars a month, you need to make it happen. And you need to make it happen regardless of your financial situation. So you know, you know You need $4,000 a month and 200 of that is going to go towards your student loan and you’re going to be short because Christmas came around then you need to get a side job you need to sell something you need to bake cookies and do a sale you need to do something like a side hustle like, you know, I talked about the the make more money episode in Episode Five. And then it’s also kind of cool with this app, you can allow others to track and contribute to your student loans. I thought that was really awesome. You know, you can say instead of a Christmas gift, if you can contribute something to my student loan, that would be great.

26:41

So that was our show, go to money for average shows calm for show notes, and basically get access to the nine principles course for free. All you have to do is join the group. It’s a community where we’re all kind of focused on helping each other overcome our financial failures and be able to have a future right? So, by educating yourself, I hope today you’ll apply what you learn and gain new skills, have fun and have more money for what matters most. All the show notes like I said, our money forever shows calm and the hashtag is MFA Joe’s no apostrophe if you want to share with your friends on social media. Just so you know, the show is for general education purposes. I am merely a financial coach. I’m not certified event visor or planner. I have not reviewed your unique situation. So this is not considered personal financial advice. I’m Jason Weaver. Money forever shows calm. Have a good day and we’ll see you next time.

Transcribed by https://otter.ai

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